The digital financial institution N26 is contemplating profitable a competitor

The logo of the German online bank N26 is displayed on a smartphone.

Thomas Trutschel | Photo library via Getty Images

LONDON – German online bank N26 is considering an acquisition for the first time after raising heaps of money and reducing losses despite the coronavirus pandemic.

The $ 3.5 billion financial technology company said net losses in its core European business were € 110 million ($ 133 million) in 2020, up from € 165 million a year earlier.

N26 did not disclose any sales figures for the past year, but said that gross sales in 2019 doubled from 43.6 million euros in the previous year to almost 100 million euros. The European losses have also more than doubled this year from 73.2 million euros in 2018.

The digital bank’s total operating losses in 2019, which include the US and UK markets – N26 was withdrawn from the UK last year – was € 216.9 million. N26 has not disclosed full losses for 2020 including international markets.

N26 was founded in 2013 by longtime friends Maximilian Tayenthal and Valentin Stalf and has attracted 7 million users worldwide. It’s one of many app-based challenger banks that has grown in popularity in recent years. Rivals include Revolut in Europe and Chime in the US

The company has so far raised a total of $ 800 million from investors including Chinese tech giant Tencent and billionaires Peter Thiel and Li Ka-shing. It has also started using its war chest to buy a fintech competitor.

“We started to look at some interesting targets opportunistically – and we are still looking for them,” Tayenthal, co-CEO of N26, told CNBC in an interview. The company has relied on organic growth in the past, he added.

“They could be players who are strong in certain areas. Think trading, think KYC (know your customer). There could be other fintechs. Challengers in our field who have a good customer base.”

Tayenthal said there are no “super concrete” plans at the moment, but that there is discussion and “a good number of players are looking”.

“I’ve had talks and we’re still looking for interesting opportunities,” he said.

The Berlin-based group raised $ 100 million in new funds from existing investors early last year as the coronavirus pandemic rocked the global economy.

In the summer of 2020, N26 was grappling with the dissatisfaction of its own workers. Disgruntled employees formed their own works councils – organs of workers’ organization within a company – to address concerns about management.

Pushing for profitability

So-called neobanks have come under pressure not only to clean up their work culture, but also to concentrate on making money. Fintech industry experts have warned that the space could see some consolidation as some players stumble in the Covid-19 crisis.

A big driver for N26 sales were the accounts based on premium subscriptions, for which fees between 4.90 and 16.90 euros are charged for a number of additional functions.

However, Tayenthal said the big focus for 2021 will be on a “marketplace” model that includes products it can’t offer itself – like trading and credit – while also accepting third-party fees in the N26 app.

“In 2020 we actually reduced the incineration considerably,” said Tayenthal. “It is right that at some point, while we are still investing in growth, expansion and building the team, we also want to be more profitable.”

The N26 co-founder said his company plans to hire an additional 200 people this year. The company currently employs 1,500 people worldwide. The company also plans to expand into Brazil, having recently obtained a banking license in the country.

“The environment in Brazil is actually very favorable,” said Tayenthal. “Everyone has a bank account in the markets we are already in. Obviously, this is not the case in Brazil.”

According to the World Bank, almost a third of adults in Brazil do not have access to a bank account. But the market has seen increasing acceptance of digital banking in recent years. Nubank, a well-funded neobank based in Brazil, has a total of 25 million users across Latin America.

N26 recently hired a new Chief Financial Officer, Jan Kemper, to replace Tayenthal, who himself has risen to become a newly created Co-CEO. Kemper is a former Zalando manager who led the German e-commerce company’s IPO in 2014.

The move sparked speculation that N26 might go public soon. But Tayenthal said the company has no immediate plans, despite strong recent debuts from US consumer finance start-up Affirm and digital insurer Lemonade.

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